Hello!
Please explain me this because I can not figure out!
As I see producers sell their stuff to wholesales. Wholesales gather a bunch of different things and then sell it to retailers who communicate with the costumers and sell it to them.
For example a wholesale of stationery gathers pencils, papers, toners etc. Then they sell these in smaller amounts to retailers who after that deliver directly to the offices (to the costumers).
Why don’t wholesale just sell and deliver right away to the costumers and gain the extra money the retailers basically live on?
In: Economics
Because as well as profit on any given sale, you must also consider the hassle involved, because hassle eats away at profit.
It might be quite easy to put in however many raw materials to a factory machine, let the machine do its thing, and receive 100,000 manufactured objects afterwards. If you can then sell all 100,000 to just one or two purchasers, there is very little hassle in terms of making those sales. However, trying to find 100,000 individual customers to buy one object each would be a huge amount of hassle that a factory doesn’t want (and usually isn’t set up to handle).
So although selling directly to the public might result in greater profit per object sold, it also requires a lot more cost to generate individual sales, to handle returns and faults, to have all the smaller packaging to handle different sizes of orders, to have an ordering system and packaging department to handle each individual order correctly, all the staff to oversee this, and the IT staff and website to be able to sell to people directly. At the end of the day, all of these additional costs will eat away at the profit per object, so that the business may well find that it is suffering huge amounts of additional hassle that it doesn’t really want to have, without really making any greater profit margins (higher income but higher costs as well). So, why complicate matters? They keep it simple and have fewer liabilities in the process.
Every step along the supply chain is set up to be able to buy in a number of objects at a price appropriate to that number of objects, and to sell the objects in smaller quantities per order over a greater number of orders, and will have the staff, business contacts, and technical setup to achieve the task they set for themselves.
That’s why you might have a massive company buying directly from the factory in gigantic quantities, and then exporting huge quantities in single orders to national importers around the world. These national importers then receive the huge quantities in single orders, and sell large quantities in single orders to regional wholesalers. These regional wholesalers then receive large quantities in single orders, and sell in smaller quantities to local shops. These local shops then receive small quantities in single orders, and sell individual objects via individual orders to individual customers.
Although it may seem inefficient to do it like this, it means every business can be set up to deal with a particular level of financial outlay for stock purchase, and to deal with a particular level and quantity of advertising, packaging, and distribution to its own chosen level of customer.
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